Abstract—This paper reviews corporate governance issues in

Nigeria from both its regulatory and compliance view points. It

explores whether rules and regulations as contained in corporate

governance codes can adequately address the issue of poor corporate

governance and the resultant business failures. It carries out a deep

examination of existing codes of corporate governance to determine

whether the implicit interrelationship which should exist between

corporate governance and ethics are clearly articulated.

The paper finds that while the Nigerian code of corporate

governance contains elements of international best practices as

specified in OECD, CACG and IOD documents, a number of peculiar

institutional weaknesses hinder the achievement of regulatory and

judicial remedies open to stakeholders who are wronged as a result of

poor corporate governance. The paper thus advocates for measures

that instill high ethical and moral standards in boards and

management as panacea to doing what is right.

Keywords— Corporate governance, control Mechanisms,

Corporate ethics.

I. INTRODUCTION

USINESS failures have always been part of economic

history. Enterprises are known to have failed for reasons

of market share, volume of turnover, asset size etc. However, a

disturbing phenomenon over the last three decades or so, is

instances of corporate failures due to poor corporate

governance practices.

Corporate governance, often defined as the way businesses

are directed and controlled, is concerned with the work of the

board as the body which bears ultimate responsibility for the

performance of a business. Corporate governance seeks to

ensure a balance between economic and social goals of a

business and also between individual and communal goals,

Corporate governance framework also seeks to encourage

efficient use of resources and equally require accountability

for the stewardship of those resources.

These demands have led governments and their regulatory

institutions across different jurisdictions to develop and codify

standards of corporate governance which enterprises are

expected to follow. Corporate governance guidelines and

codes of best practices thus arise in the context of and are

affected by differing national frameworks of law, regulations

and stock exchange listings.

Bisi S. Olawoyin is with the Department of Management and

Accounting Obafemi Awolowo University, Ile-Ife, Nigeria. Email:

bs_olawoyin@oauife.edu.ng, +2348037192296.

Prior to the global economic and financial crisis which

started in 2008, evidences from various surveys had indicated

that corporate governance lapses were significantly

responsible for the collapse of over 70% of companies in

Nigeria in the preceding two decades. Corporate failures were

not limited to banks but include insurance, textiles,

communications, airways etc. Executive management and

boards of- these institutions were alleged to have been reckless

with investors funds, neglected due processes and took biased

decision, conducts which negate principles of good corporate

governance. In all of these instances of failures, the question of

ethics or the right behavior are inherent in every board

decision and action.

As Sanusi [1], the governor of the central bank of Nigeria,

aptly puts it on bank failures, “the banks did not fail; they were

destroyed and brought to their knees by acts committed by

identifiable people”.

The general assumption seems to be that where regulation is

based on prescriptions and well written codes, there ought to

be stable companies with good practices of corporate

governance. However, this has not been the case as several

large scale business failures have been recorded, even in recent

past, across several jurisdictions. This has now put to question

the efficacy of codified models of corporate governance thus

necessitating a revisit of ethical and behavioural issues. Posers

now raised by the above scenario include: Are corporate

governance failures a result of absence of regulation or more

of a behavioral problem? Can reporting or disclosure

requirements sufficiently deal with behavioural problems, if

any?

Hence, this paper explores the nature of existing corporate

governance codes, their limitations and the direction of the

thinking towards improving ethical and moral standards of

governance.

II. CORPORATE GOVERNANCE IN HISTORY

Corporate governance has a long history. By the beginning

of the 16th century, England, which has become a major

trading nation, formed a variety of regulation and regulatory

authorities such as joint stock companies and the Bank of

England to govern all trading activities on the platform of

acceptability, efficiency, effectiveness and stakeholders’

satisfaction. The concept of corporate governance was the

basic platform for these regulations and regulatory authorities

and over a period of time, the concept and its practice took a

Corporate Governance in Nigeria:

The Ethical and Behavioral Imperatives

Bisi S. Olawoyin

B

International Conference on Arts, Economics and Management (ICAEM'14) March 22-23, 2014 Dubai (UAE)

http://dx.doi.org/10.15242/ICEHM.ED0314025 88

firm root for all activities.

Crawford [2], notes that since the late 1970’s, corporate

governance has been the subject of significant debate in the

US and around the globe. He said bold and broad efforts to

reform corporate governance have been driven in the past by

the needs and desires of shareholders to exercise their right of

corporate ownership and to increase the value of their shares

and hence wealth.

Over the past three decades, corporate directors’ duties have

been expanded greatly beyond their traditional legal

responsibility of duty of loyalty to the corporation and its

owners. By mid 1990’s, the concept and practice of corporate

governance had become a public debate due to waves of

dismissal of CEO’s of corporation like IBM, Kodak etc. There

was also a wave of institutional shareholders activism meant to

ensure corporate governance value. Wikipedia also holds that

in 1977, the Eastern Asia financial crisis saw the economies of

Thailand, Indonesia, South-Korea, Malaysia and the

Philippines severely affected by the exits of foreign capital

after the collapse of huge assets. The lack of corporate

governance mechanism in these countries highlighted the

weakness of the institutions in their economics.

In the early 2000’s massive bankruptcies and criminal

malfeasance of Enron and world com as well as corporate

debacles of AOL, Arthur Andersen etc led to increased

shareholder and government interest in corporate governance.

All these put together, gave rise to the widespread practice of

corporate governance across the globe for it is a settled fact

that positive effects of corporate governance on different

stakeholders is ultimately, a strengthened economy. Hence the

commonly accepted principles of corporate governance which

must be adhered to should include:

- Right and equitable treatment of shareholders

- Interest of other stakeholders

- Role and responsibility of board of directors

- Integrity and ethical behavior

- Disclosure and transparency.

-

To make these principles very effective, certain mechanisms

have been designed such as internal control procedures,

internal audit, balance of powers etc.

III. CORPORATE GOVERNANCE IN NIGERIA

The regulatory framework of corporate governance is a

global phenomenon. But while there are universal codes for

regulating the practice of corporate governance, there also

exists national codes based on local needs and the unique

characteristic of each country. However, regardless of whether

the code is global or national, the regulatory framework of

corporate governance can be viewed from two broad

perspectives viz; voluntary and mandatory.

Wilson [3], observes: in Nigeria, as in most developed

countries, observance of the principles of corporate

governance has been secured through a combination of

voluntary and mandatory mechanisms. In 2003, the Artedo

Peterside committee set up by the Securities and Exchange

Commission (SEC) developed a code of best practice of public

companies in Nigeria. The code is voluntary and is designed to

entrench good business practices and standard for board of

directors, auditors, CEO’s etc of listed companies including

banks.

Mandatory corporate government provisions are contained

in companies and allied matters act [4], banks and other

financial institution act [5], investment and securities act [6],

and the security and exchange act [7].

Drawing from the trio of Organisation for Economic

Cooperation and Development (OECD), Commonwealth

Association for Corporate Governance (CACG), and Institute

of Directors (IOD)’s codes, Nigeria has developed codes for

the practice of good corporate governance which reflect some

of the elements of OECD and other global codes. These

include

1) Separating the roles of the CEO from those of the board

chairman

2) Prescription of non-executive and executive directors

on the board

3) Improving the quality and performance of board

membership

4) Introducing merit on criteria to hold top management

position

5) Introduction of transparency, due process and

disclosure requirements.

6) Transparency on financial and non-financial reporting

7) Protection of shareholders rights and privileges

8) Defining the composition, roles and duties of the audit

committee. (Wilson ) op cit.

A. Shortcomings of model of corporate governance relying

on rules and regulations.

It has become evident, not only in Nigeria, but worldwide

that there have been various challenges in the process of

implementing these codes. The Nigerian experience was aptly

summarized by the Central Bank of Nigeria in its code of

corporate governance for banks in Nigeria. Post consolidation

[8].. The challenges identified are not limited to banking sector

but cut across other financial institutions and business

corporations in general. They include

Technical incompetence of board and management.

Boardroom squabbles and relationship among directors

Squabbles arising from knowledge gaps and relationship

between management and staff

Increased level of risks

Ineffective integration of entities

Poor integration and development of ICT system

Inadequate management capacity

Insider dealings

Rendition of false returns

Continued concealments

Ineffective board/statutory audit committee.

Inadequate operational and financial controls

International Conference on Arts, Economics and Management (ICAEM'14) March 22-23, 2014 Dubai (UAE)

http://dx.doi.org/10.15242/ICEHM.ED0314025 89

Absence of robust risk management system

Discriminatory disposal of surplus asset.

Non transparent and inadequate disclosure of information

The various acts and codes meant to strengthen corporate

governance provide judicial remedies for breach of directors’

duties. These remedies include.

Action to recover secret profit

Action in damages and compensation

Restoration of company’s property

- Winding up proceedings on just and equitable grounds

- Relief on the ground that the affairs of the company are

being conducted in an illegal or oppressive manner

- Application to Corporate Affairs Commission to

investigate company’s affairs.

A major obstacle in obtaining the above reliefs is that

enforcing them lies with the courts. Nigerian courts remain

slow and expensive and not effective in resolving commercial

disputes. While the courts remain slow, inefficient and

expensive, shareholders are hesitant to use the courts and as a

result the directors continue to act with impunity.

Another remedy to prevent bad corporate governance is

through the oversight function of regulatory authorities. Hence

agencies such as US-SEC, the secretary of state in the UK and

in Nigeria, Securities and Exchange Commission (SEC), and

corporate affairs commission (CAC) and the Central Bank of

Nigeria (CBN) are meant to perform such oversight. However,

these bodies hardly launch any inquisitorial raids on corporate

bodies. Where they do, the penalties usually meted out to

companies found liable for any breach do not deter, hence

directors can afford to risk non-compliance with relevant laws.

.Beyond this, France et al [9], point out that laws regulating

companies are ambiguous ,that juries have a hard time

grasping abstract and sophisticated financial concepts ……;

hence, well counseled executives have plenty of tricks for

distancing themselves from responsibilities.

These shortcoming/challenges thus underscore the

imperative of instilling ethical principles and standards in the

boards, management and employees. As eminent psychologist

Robert Sternberg [10], aptly puts it, “”rules and regulations

aren’t the answer, there is always a loophole to be found and

the focus becomes navigating the system rather than doing

what is right. We need leaders with strong moral compass”.

IV. ROLES OF ETHICS IN CORPORATE GOVERNANCE

Ethical principles are universal standards of right and wrong

prescribing the kind of behavior that an ethical company or

person should and should not engage in. These principles

provide a guide to making decisions and they also establish

criteria by which those decisions are judged by others.

Ethical people and companies often do more than they are

required to do and less than they are allowed to do. The law

tells us what we can’t do (prohibition) and sometimes what we

must do (mandates). It does not answer the bigger question of

what should we do?

It must be appreciated that compliance with laws is only a

part of ethics. Boards, management and employees must go

beyond the law and internalize the virtues of good morals. As

President Theodore Roosevelt said “to educate the mind

without morals is to educate a menace to the society”.

Ethical standards may be expressed in a company’s formal

conduct requirement or contained in generally stated principles

that guide a company’s preferred conduct or behavior. A

number of corporations have put in place a code of ethics for

their employees to conduct themselves in particular manner

while doing business.

Codes of ethics are required to

- Define acceptable behavior

- Promote high standards of practice

- Provide a benchmark for self evaluation

- Establish a framework for professional behavior and

responsibility.

- Michael Josephson [11], enunciates the following

principles that a code of ethics must deal with:

- Honesty in communication and actions

- Integrity

- Promise keeping

- Loyalty within the framework of other ethical principles

- Fairness

- Caring

- Respect for others

- Obeying the law

- Commitment to excellence

- Leadership

- Reputation

- Accountability

It is thus generally accepted that strong moral and ethical

standards will strengthen corporate governance.

V. SUMMARY AND CONCLUSIONS

There is no doubt that issues of best practices in corporate

governance will continue to dominate discourse in

management literature for years to come. It is also important to

appreciate that the principle of separate legal entity of

corporation in law did not intend total extrication of the

importance of human behavior in the management of these

entities As Arjoon [12], cautions, “” the tendency to over

emphasise legal compliance mechanisms may result in an

attempt to substitute accountability”” for “responsibility” and

may also result in an attempt to legislate morality.

Hence, while efforts are continuously being made to

strengthen laws and regulations about corporate governance,

conscious efforts must also be made to instill high ethical

standards Corporate governance codes and ethics are both

needed for enterprises development. Company executives can

no longer afford to pretend that business is not bound by any

ethics other than simply abiding by the law. The thinking that

business should make as much profit within the framework of

the legal system cannot stand in the face of several business

failures where directors are paying lip service to technical

compliance with regulations.

International Conference on Arts, Economics and Management (ICAEM'14) March 22-23, 2014 Dubai (UAE)

http://dx.doi.org/10.15242/ICEHM.ED0314025 90

REFERENCES

[1] L.S.Sanusi ;”The Nigerian Banking Industry :What went wrong and the

way forward” Convocation lecture, Bayero University ,Kano, Nigeria.

26th feb,2010

[2] C.J. Crawford: compliance and conviction:- the evolution of enlightened

governance Santa Clara, USA, 2007

[3] I. Wilson: Regulatory and Institutional Challenges of Corporate

Governance in Nigeria-Post Consolidation. Nigeria Economic Summit

Group, 2006

[4] Federal republic of Nigeria: companies and allied matters Act (with

amendment) 1990

[5] Federal republic of Nigeria: Banks and other financial institutions Act

No 35 (with amendment) 1991

[6] Federal Republic of Nigeria: Investments and securities Act. Abuja,

Nigeria. 1999.

[7] Federal Republic of Nigeria: Securities and Exchange Act; Abuja,

Nigeria. 1988

[8] Central Bank of Nigeria: CBN code of corporate governance for banks

in Nigeria-post consolidation; Abuja, Nigeria. 2013

[9] M. France;D Carney; M. McNamee and A Borrus: “Why Corporate

Crooks are Tough to Nail “. Business Week, Issue 3789, Jan7th,2002.

[10] R.J. Stenberg: A model for Ethical Reasoning. Review of General

psychology. Vol. 16 No 4 2012.

[11] M. Josephson: Business ethics insight: Difference between what is legal

and what is right. Josephson Institute, Los Angeles,CA;2013

[12] S. Arjoon:”” Corporate Governance : An Ethical Perspective””. Journal

of Business Ethics ,Vol 61 Issue 4. 2005.

International Conference on Arts, Economics and Management (ICAEM'14) March 22-23, 2014 Dubai (UAE)

http://dx.doi.org/10.15242/ICEHM.ED0314025 91